Bloomberg News

Suntech Delays Bond Repayment to May 15 in Restructuring

By Ehren Goossens and Louise Downing
March 12, 2013

Suntech Power Holdings Co. (STP:US), once
the world’s biggest solar-panel maker, said it received a two-
month forbearance on repaying $541 million of bonds as
negotiations to restructure the debt continue.

More than 60 percent of the holders of the notes, which are
convertible into stock, agreed not to exercise their rights
until May 15, the Wuxi, China-based company said yesterday in a
statement. The bonds were scheduled to mature Friday and Suntech
hired UBS AG last year to advise it on extending the deadline.

The decision marks a temporary reprieve for Suntech’s
management after it ousted founder Shi Zhengrong as chairman on
March 4. Suntech hasn’t reported a profit since the first
quarter of 2011 as a global slump in panel prices curtailed
earnings. Bondholders may have few options besides granting the
extension, according to Vicki Bryan, a bond analyst at Gimme
Credit LLC in New York.

“Bondholders have little choice but to agree to this delay
given the pronounced weakness of their unsecured claims amid
Suntech’s heavy debt load,” she said in an e-mail.

Owners of Suntech’s debt face “an acute risk they won’t
get repaid at all unless the company continues as a going
concern outside of bankruptcy,” she said.

Bondholders ‘Flabbergasted’

Suntech’s American depositary receipts, each worth one
ordinary share, fell 8.1 percent to $1.15 at the close in New
York. The March 15 bonds fell 7.7 percent to 30.5 cents on the
dollar, according to Trace, the bond-pricing reporting system of
the Financial Industry Regulatory Authority.

Not all bondholders approved the deal. Colin Peterson, who
said he’s a bondholder through his distressed debt-focused hedge
fund, Trondheim Capital Partners LP, in Scottsdale, Arizona,
said he wasn’t aware of the forbearance agreement until it was
announced.

“There are many people who own several million in bonds
that are flabbergasted by this forbearance claim,” he said in
an interview yesterday.

Bondholders are “effectively equity holders,” he said.
“There is a risk that U.S. equity holders could be devalued
significantly.”

Bondholder Options

The rest of the bondholders that haven’t agreed to extend
the date yet are unlikely to file involuntary bankruptcy “since
there is no recovery for bondholders in case of bankruptcy,”
Amit Jain, a Bangalore-based analyst at SJS Markets Ltd., said
today.

Should some bondholders want to take the company into
bankruptcy, holders of at least 25 percent of the aggregate
principal amount of notes then outstanding would have to provide
notice of their intent to force a default after May 15, Jain
said, adding that he expects a restructuring within 60 days
because bondholders have limited bargaining power.

The company is “working to find a resolution,” Suntech
Chief Executive Officer David King said in the statement.

Suntech has been talking to local government agencies in
Wuxi about financial support. The company named Susan Wang to
replace Shi as chairwoman of the board March 4. Shi remains as a
director. Wang has been a director since 2009.

Local Government Options

Shi founded Suntech in 2001 after earning a doctorate in
electrical engineering from Australia’s University of New South
Wales and serving as executive director of Pacific Solar Pty. in
Sydney. It was the first Chinese solar company in the 17-member
BI Global Large Solar index to sell shares on the New York Stock
Exchange. (NYX:US) Its 2011 sales of $3.1 billion made it the world’s
biggest panel maker. The company hasn’t released an earnings
report since the first quarter of 2012.

“The Wuxi government may be driven to save some of the
local assets owned by Suntech, while they won’t rescue the
entire listed company which mainly involves overseas
investors,” Wang Haisheng, a Shanghai-based analyst at Minsheng
Securities Co., said today by phone. “The government is more
prone to spin off the assets.”

Wuxi Suntech Power Co., a unit of Suntech, may seek
bankruptcy protection between March 15 and March 20, the China
Business Journal reported yesterday, citing a person it didn’t
identify. State-owned Wuxi Guolian Development (Group) Co. plans
to acquire the stakes in the unit afterwards and lead its
restructuring, the report said. Suntech declined to comment on
the report.

“It’s fairly unlikely to secure new loans from banks, even
China Development Bank,” said Minsheng’s Wang. “The best
support from them is not to ask for overdue loans.”

Litigation Faced

Suntech has been sued by Bank of China Ltd. over a loan
contract dispute, the 21st Century Business Herald said March 7,
citing a person it didn’t identify. “Suntech is aware of the
litigation and we intend to resolve it amicably,” a company
spokesperson, who declined to be named, said by e-mail in
response to the report.

Companies that “can’t get through 2013” will prompt an
industry reshuffling, the China Daily reported today, citing
Chen Kangping, chief executive officer of JinkoSolar Holding (JKS:US) Co.
“We believe those companies that perform well, including
JinkoSolar, will be profitable in the second half of this
year.”

To contact the reporters on this story:
Louise Downing in London at
ldowning4@bloomberg.net;
Ehren Goossens in New York at
egoossens1@bloomberg.net

To contact the editor responsible for this story:
Reed Landberg at
landberg@bloomberg.net